Egypt Default Risk Rises After Clashes as Islamists Reject Talks

Egypt’s default risk climbed after Islamist backers of the country’s deposed president clashed with police and rejected reconciliation talks. The dollar weakened in black market trading.

Five-year credit default contracts rose 13 basis points to 675, according to data provider CMA. The yield on Egypt’s $1 billion of 5.75-percent notes due 2020 advanced one basis point to 8.53 percent as of 2:32 p.m. in Cairo after a 20-basis point jump yesterday, according to prices compiled by Bloomberg.

Seven people were killed in overnight clashes in Cairo between police and protesters demanding the return of ousted President Mohamed Mursi to power, according to the Health Ministry, adding to a death toll of more than 50 last week. The Muslim Brotherhood and Al Nour Party, the country’s biggest Islamist groups, rejected reconciliation talks called for by interim President Adly Mansour.

“The aggression on the streets reflects instability we’re seeing as part of the transition, so naturally investor concern grows,” Mona Mansour, head of research at Cairo-based CI Capital, said by phone. “In the end, though, the government must find a way to incorporate the Islamists.”

The dollar in black market trading weakened to 7.17 Egyptian pounds, or a 2.4-percent premium over official price of 7.0027 pounds a dollar, according to the average quote of three money changers surveyed by Bloomberg. That compares with a 4.2-percent premium last week and as much as 15 percent in early April. The dealers operate currency-exchange businesses in Cairo and asked not to be identified because trading outside official rates is illegal.